The Group of Seven (G7) finance ministers have committed to a deal that would see a minimum global corporate tax rate of at least 15%, which could result in hundreds of billions of dollars flowing into government coffers.
US Treasury Secretary Janet Yellen said it would mean an end to what she referred to as a “race to the bottom on global taxation”, while Facebook has stated that it expects to pay more tax in more countries as a result of the deal.
German finance minister Olaf Scholz claimed the deal was “bad news for tax havens around the world”. However, Irish finance minister Paschal Donohoe said any global deal needs to take small nations into account; Ireland has a corporate tax rate of just 12.5%.
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As usual, the Business Council of Australia CEO Jennifer Westacott has used the deal to talk her own book and lobby for a cut to Australia’s 30% company tax rate:
“At double our 30 per cent rate, a global minimum of 15 per cent leaves Australia severely exposed in its ability to attract global capital,” Business Council of Australia chief executive Jennifer Westacott said.
“That means we run the risk that investments in major projects and the new industries that create new jobs will simply flow to other countries. Australia needs a permanently competitive tax system.
Evidence of the impact from the US Trump Administration’s corporate tax cuts to 21% from 35% were disappointing, fuelling little more than a boom in share buybacks. The US Budget deficit also ballooned, in part to fund the corporate tax cuts.
The fact remains that there is no correlation between lower company tax rates, employment, or economic growth. Here’s research on Australia showing no relationship. And here’s research from the United States also showing zero correlation.
Similarly, foreign investment isn’t dependent on the company tax rate. In fact, most of Australia’s foreign investment comes from countries with lower tax rates.
Therefore, it’s clearly trickle-down nonsense to believe that cutting company taxes will benefit ordinary workers. Instead, they’ll be left paying off an even bigger Budget deficit.
Just look at the US experience and ask yourself whether you believe Australia should follow suit?
It’s also worth pointing out that the Australian Treasury’s modelling showed only tiny benefits from cutting company taxes based on dodgy assumptions that cannot be taken seriously. Most notably, the modelling bizarrely assumed that cutting Austyralia’s company tax rate by 5% would suddenly cause multinational corporations to stop avoiding tax (called a ‘morality dividend’) – a laughable assumption given the empirical experience.